As smartphones hit a plateau, is device-as-a-service the future?

The popular iPhone SE from Apple. Photo via Nattakit Jeerapatmaitree/Shutterstock

Could owning a smartphone by subscription be the future for the industry as smartphone sales start to flatten?

Smartphone growth is flattening out. Shipments of smartphones were at 343.3m worldwide in the second quarter of 2016, up just 0.3pc on last year according to IDC. But new paradigms like device-as-a-service, where users pay a subscription to have the latest devices at all times, could change things.

During Q2 2016, Samsung maintained its lead over Apple thanks to strong Galaxy S7 and S7 Edge sales. Then again, the second quarter has traditionally been Apple’s quietest quarter as consumers save their pennies and the company saves its firepower for a big refresh of iPhone and other devices in September.

‘Outside of Samsung’s Galaxy S7 flagship, a majority of vendors, including Apple, have found success with more affordable models’– ANTHONY SCARSELLA, IDC

A new paradigm

Changing dynamics in the market include efforts to copy Apple’s lead in device-as-a-service whereby users pay subscriptions known as equipment installation plans (EIPs) to ensure they always have the latest device.

Last September, Apple launched the iPhone Upgrade Programme that guaranteed a new iPhone every year for subscribers who paid a subscription starting at $32.41 a month.

“Mature markets continue the transition away from pure subsidy and over to EIP programmes and Apple is beginning to put more emphasis on device-as-a-service to try to prevent lengthening replacement cycles,” said Ryan Reith, vice-president for IDC’s Mobile Device Tracker suite.

“This is a growing theme we have heard more about from PCs to smartphones. Additionally, the overall China market slowdown continues to ramp up competition in other high-growth markets like India, Indonesia, and the Middle East.

“Interestingly enough, our early findings show low-end Chinese OEMs that predominantly built their business domestically in China are having success penetrating non-China markets, despite low-end competition from local brands already in place.”

Samsung out in front, but Apple steels itself for vital Q3 dash

As already mentioned, the second quarter is seasonally Apple’s slowest of the year, as consumers hold off on purchases in anticipation of the next big launch in the third quarter.

Apple shipped 40.4m units in the second quarter of 2016, which marked the lowest quarterly volume in seven quarters despite the mid-cycle introduction of the iPhone SE. In the face of declining shipments, However, Apple did witness strong sales in both established and emerging markets thanks to the launch of the more affordable SE handset.

Huawei captured the third position once again thanks to strong domestic sales and even stronger European sales.

“Outside of Samsung’s Galaxy S7 flagship, a majority of vendors, including Apple, have found success with more affordable models compared to their flagship handsets,” said Scarsella.

“As smartphone prices continue to drop and competition escalates at the high end, vendors will need to continue to push ‘flagship-type’ devices at affordable price points to encourage upgrading on a more frequent basis.

“Chinese brands such as Huawei, Oppo, Vivo, and Xiaomi have witnessed success with this strategy by shipping premium-styled devices that focus on the features that matter most to consumers, such as imaging, sound quality, and design,” Scarsella added.